Inheritance tax - gifts out of income and one off gift query

r0b3rt

Hello,

I am filling in all the IHT forms as a relative has sadly passed away and there will be a little bit of inheritance tax to pay so I need to get everything absolutely correct.

For most tax years everything, even if technically they could have been claimed as a gift out of income, I have just put down the gifts as a gift under/covered by the annual exemption each year (to save on the headache of doing the in depth accounting required for gifts out of income) - I think that is allowed / don’t think that is a problem?

For one tax year though the annual exemption doesn’t cover matters and so I have looked into the accounts for that tax year and after all income and expenditure has been accounted for there is a surplus of more than the amount of gifts out of income I would be claiming.

This is my real question - they also, in that tax year, made a one off gift of about three thousand pounds (this will be covered by the annual exemption) and this gift was from savings they had already so I haven't included it with the expenditures for the tax year which seems the right way to do it but is this allowed or should I have put it in with the tax years expenditures even though it was from existing savings present before/at the start of the tax year?

I suppose I'm also asking as I'm the sole beneficiary I'm wondering is it really worth bothering claiming the gifts as out of income (total £1500) as the effective IHT saving will be £600 vs possibly getting into a dispute with HMRC and potentially having to go over further tax years in great detail (which I haven’t fully done yet), do HMRC paw over something like this / of that value?  Gifts out of income generally seem like quite a grey area open to dispute.

Many thanks,

Robert

Keep_pedalling

I am pretty sure going over the annual exemption for a single year will be seen as a one off gift rather the a gift from excess income as you cannot show a regular patten of such gifts. 

Olinda99

gifts out of income definitely have to be a pattern - for example the deceased gave 500 a month every month to his nephew 

a one of payment would be a gift

r0b3rt

Thank you both for answering.  I'm sorry but I've not explained it well enough.

The one off single gift (£3000) I'm not trying to treat as a gift out of income but a one off gift that I can claim exemption for as it was the only gift made that tax year so the annual exemption will cover it.

What I'm treating as gifts out of income were all in relation to birthdays, Christmases or other similar recurring patterns of payment and there was enough surplus income to cover those payments in that tax year.

My query was as the one off gift came out of their savings and therefore not out of any income for that tax year I presume, when doing calculations for gifts out of income, I don't declare it as an expenditure out of the income for that tax year?  It seems logical not to as it was an expenditure from their savings and NOT an expenditure from their income for that tax year.

I just haven't as yet found an example that covers this sort of thing so I am just trying to get it clarified.

poseidon1

r0b3rt said:

Thank you both for answering.  I'm sorry but I've not explained it well enough.

The one off single gift (£3000) I'm not trying to treat as a gift out of income but a one off gift that I can claim exemption for as it was the only gift made that tax year so the annual exemption will cover it.

What I'm treating as gifts out of income were all in relation to birthdays, Christmases or other similar recurring patterns of payment and there was enough surplus income to cover those payments in that tax year.

My query was as the one off gift came out of their savings and therefore not out of any income for that tax year I presume, when doing calculations for gifts out of income, I don't declare it as an expenditure out of the income for that tax year?  It seems logical not to as it was an expenditure from their savings and NOT an expenditure from their income for that tax year.

I just haven't as yet found an example that covers this sort of thing so I am just trying to get it clarified.

Consider whether some or all of these birthday/xmas gifts are covered by the £250 small gifts exemption. This is unlimited as long as the individual recipients are limited to that amount each tax year. 

Have a look at IHTM14180  of HMRC's manual online for clarification.

Keep_pedalling

How much are we talking about with regard to Christmas and birthday presents per person? Normally you would not have to declare these.

r0b3rt

Unfortunately as I understand it I have to as some of them were to me but so was the larger gift.

I've been mulling it over and doing some more research and I've decided as I'm the only beneficiary and for some other reasons too that I will just put them all down as one off gifts and take the tiny in the grand scheme of things hit of additional inheritance tax.

Thank you all for taking the time to answer though.